Charities worry and wait

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CHARITIES WORRY AND WAIT: When the Tax Cuts and Jobs Act was signed into law last year, many charities worried that some of its provisions would take a big bite out of contributions. They reasoned that the near doubling of the standard deduction and a cap on the state and local tax deduction would lead to a dropoff in itemizing and lessen the appeal of charitable giving. So with the end of the year approaching, what has been the experience of the charities themselves? The oulook is cloudy and may remain so for some time.

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“While we're not expecting to be able to see the full picture until year-end or even into next year, we are seeing some early indicators” of a downturn, said Rick Cohen, COO of the National Council of Nonprofits. Patrick Rooney, associate dean of Indiana University’s Lilly Family School of Philanthropy, said: “The data will be cloudy for a couple years. I think for a lot of people, it will take going through the cycle once or twice and deciding how they want to react.”

A recent survey by the school and U.S. Trust found that 88 percent of high-income donors expected to maintain or increase their contributions this year, regardless of the new tax law, H.R. 1 (115). But charities are less concerned about contributions dropping off from that quarter than they are about a chilling effect on giving by middle-income households.

“The TCJA likely will accelerate a growing shift from low- and moderate-income contributors to a relatively small number of mega-donors, a trend that makes many in the non-profit sector very uncomfortable,” Howard Gleckman, a senior fellow at the Tax Policy Center, wrote recently. “That shift will create winners and losers among non-profits. Religious and social service agencies may see contributions drop while bigger colleges, hospitals, and high-end arts organizations are largely unscathed.”

Nonprofits intend to keep up the pressure on Congress to address their concerns. “The American Red Cross is disappointed that the new tax law did not contain a universal charitable deduction available to all taxpayers, whether they itemize or not,” said Greta Gustafson, a spokesperson for the organization. “At this point, it’s too early to assess the full impact of the law, but it is certainly an issue we will raise next year with the new Congress.” Lawmakers in both chambers have introduced legislation to create a universal deduction. But passing it will be a heavy lift because of its cost, estimated at over $100 billion.

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NO TCJA INVESTMENT BOUNCE? The National Association of Business Economics came out with a surprising finding on the TCJA this morning: Eighty-one percent of the NABE members it surveyed in the third quarter indicated the law “has not caused their firms to change hiring or investment plans—an increase from the share in previous surveys.” More hiring and investment, of course, were two of the main selling points supporters used for the legislation.

“The 2017 Tax Cuts and Jobs Act has not broadly impacted hiring and investment plans at panelists’ firms, although panelists from the goods-producing sector do report some incidence of increased investments, and a shift toward hiring and investments from abroad to the U.S.,” said NABE Business Conditions Survey Chair Sara Rutledge. Fifteen percent of NABE members in goods-producing industries reported accelerated hiring at their firms, 38 percent reported accelerated investment, and 38 percent reported redirecting hiring and investment toward the U.S.

The finding tracks with a new report from the official Bureau of Economic Analysis, which, according to Tax Notes, "showed a sharp drop in capital investment growth following an investment boom earlier in the first half of the year, although overall GDP still grew at a brisk 3.5 percent."

Perhaps tellingly, NABE members from the services sector were the least likely to report accelerated investment: 2 percent. That industry is the most likely to be affected by the “retail glitch” in the TCJA: a drafting error that significantly lengthened depreciation schedules for retail businesses and restaurants. The industry is pressuring lawmakers to fix the problem.

As for the relatively slack hiring across the board, Rutledge pointed to the tight labor market. “It’s kind of hard to move the needle when unemployment was already so low,” she said.

The survey also includes much more about business conditions beyond taxes.

TIME IS NOT ON YOUR SIDE: Complaining about how long it takes to do your taxes is something of a national pastime. And now the Government Accountability Office has some data to back up the complaints. It turns out the IRS “alone accounts for approximately 70 percent of the federal government’s total information collection burden hours," according to a new GAO report on the Paperwork Reduction Act.

The watchdog gave the agency some props, noting that among the agencies it sampled — the others being the departments of Health and Human Services, Agriculture and Transportation — “IRS was the only one to report gathering original data on public burden through surveys of individual taxpayers and businesses to help inform the estimates for its two largest” information collection requests. So what’s the big picture across the entire federal government? “Overall, based on government-wide estimates, the public spent about 9.8 billion hours responding to federal information collections in fiscal year 2015,” GAO said.

INTERNATIONAL UPDATE

U.K. TO SET DIGITAL TAX DEADLINE: Philip Hammond, the U.K.’s chancellor of the exchequer, apparently won’t include a digital tax in his budget today after all. Instead, he will set a deadline for imposing the revenue tax on the likes of Facebook, Google and Amazon. Still, Hammond said his patience was reaching its end. “We’re not going to talk about this forever,” Hammond told the Sunday Telegraph, according to a report in the Financial Times. “We’re going to have to have a timetable for moving forward and we’re going to have to set some deadlines.”

Hammond didn’t disclose what sort of deadline he is thinking about. But “one ally of Mr. Hammond said the plan was to ‘up the ante,’” according to the FT. The trade group techUK warned against singling out the industry and, like its U.S. counterpart, called for a global approach.

Speaking of which, the Wall Street Journal took a look at the international scene on digital taxes. “The efforts in Asia, the U.K. and Latin America make it likelier that several different taxes will go on the books, even if the European proposal faces a political fight,” the Journal reported. "Europe is the largest overseas market for many tech firms, and the EU estimates that its proposal would bring in about EUR5 billion ($5.7 billion) annually. But digital taxes could eventually take a bigger bite in Asia, where growth is faster and there are many more internet users.”

STATE NEWS

WHAT'S IN A NAME? Supporters of a gas tax repeal in California say they smell a rat in the official title of their ballot initiative. Proposition Six is described thus: “Eliminates certain road repair and transportation funding.” So the supporters, including California Republicans, are making calls and sending mailers to voters saying there’s a mistake on the ballot. “The calls — and a mailer dubbed a ballot ‘correction’ — were part of an advertising blitz by Proposition 6 supporters trying to drive home a message to voters to overcome what they see as a misleading title and summary on the ballot initiative,” the Associated Press reported. Opponents of the proposition are crying foul, saying the strategy is misleading and noting that the supporters didn’t mount a legal challenge over the wording.

QUICK LINKS

An obscure court ruling "is upending the staid world of trusts and estates in New York."

DID YOU KNOW?

The charitable deduction dates to 1917, when Congress passed the War Revenue Act to fund America's entry into World War I. "According to its champions, the provision was necessary if charities were to survive the war," tax historian Joe Thorndike explained. "Heavy new taxes on incomes and estates threatened to dry up the reservoir of private funds that sustained these worthy organizations."

About The Author : Toby Eckert

Prior to joining POLITICO in May 2015, he was senior state fiscal policy editor for the Center on Budget and Policy Priorities. He has also been a senior editor at Congressional Quarterly and a reporter and editor for the dearly departed San Diego Union-Tribune Washington Bureau.

Eckert is married to Amy Kavelman; has a daughter, Lily; a dog, Finn; and lives in Alexandria, Va.